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7 September, 09:09

Doreen has preferences represented by the utility function U (x, y) = 10x + 5y. She consumes 10 units of good x and 12 units of good y. If her consumption of good x is lowered to 1, how many units of y must she have in order to be exactly as well off as before?

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  1. 7 September, 11:14
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    Answer: Good Y = 14

    Explanation:

    utility function

    U (x, y) = Utility

    Good X = 10

    Good Y = 12

    U (x, y) = 10x + 5y

    U (x, y) = 10 (10) + 5 (12)

    U (x, y) = 160

    when good a drops by 1 Good X will 9

    160 = 10 (90) + 5y

    5y + 10 (90) = 160

    5y = 160 - 90

    5y = 70

    y = 14

    When Good X is lowered by 1 to maintain the level of 160 utility Good Y must be 14
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